Cocoa Prices Decline Amid Supply Concerns and Demand Issues

Cocoa prices are under pressure as the market grapples with lower demand forecasts and an improving supply outlook. Oscillating prices could impact investor sentiment significantly.

Date: 21-03-2025

AI Rating: 4

Earnings and Demand Impact: Cocoa prices have come under pressure, reflecting a decline in demand largely attributed to high prices affecting chocolate makers. The executives' warnings from Hershey and Mondelez about potential demand slowdown create significant concern for investors.

Supply Outlook: The ICCO forecasted a global cocoa surplus of 142,000 MT for 2024/25, the first in 4 years, which coupled with high cocoa inventories at US ports, suggests a bearish outlook on prices. The surplus could drive prices lower, impacting revenue streams for cocoa-related companies.

Current Production Trends: The report mentions a significant drop in cocoa production in the current cycle, down 13.1% year-over-year. Meanwhile, cocoa grindings in North America, Europe, and Asia have also seen declines, highlighting reduced consumption levels that could influence financial metrics adversely.

Inventory Positioning: As the ICCO noted, cocoa stocks are at a 46-year low, indicating a tight supply situation but could lead to volatility in pricing. This significant drop in stocks could have long-term implications for the market dynamics.

Investment Considerations: Given the factors of declining demand, bearish supply outlook, and possibility of falling cocoa prices, investor sentiment towards companies in this sector may shift negatively. It is advisable to closely monitor the earnings forecasts and demand trajectories from major players in the chocolate manufacturing industry.

Stocks: HSY MDLZ